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Lifetime allowance reform and pension/Isa clarity: What advisers want from the Budget

Philip Hammond 620px

Advisers have urged Chancellor Philip Hammond to scrap the lifetime allowance and break the link between pensions and Isas ahead of the Budget statement next week.

Firms say the biggest opportunity for reform would be to do away with the lifetime allowance, which over recent years has been cut from £1.5m to £1m.

Signpost Financial Planning director Nigel McTear says: “Abolishing the lifetime allowance would help instill a bit of confidence in wealth management clients. It’s a ridiculous tax that penalises investment success and is just another reason people turn away from pensions.”

McTear says the lifetime allowance works against the major issue of people not saving enough for retirement.

He says: “The lifetime allowance was brought in at a time when the country was in crisis. The country is now not in crisis, yet that measure persists. They’ve kind of created a monster.

“Of course the original intention was for the lifetime allowance to be at £2.4m by now if it had gone up with indexation, but the opposite has happened.”

He adds: “It’s been a political football. George Osborne’s talk of £1m in his manifesto had nothing to do with fairness or what would encourage good behaviour.”

McTear would also like to see the recently announced cuts to the money purchase annual allowance reversed, saying the move is “a sledgehammer to crack a nut.”

In the Autumn Statement last year, Hammond announced the MPAA would fall from £10,000 to £4,000 from April.

LEBC public policy director Kay Ingram agrees.

She says: “We’re very opposed to the MPAA reduction and the impact it will have. We don’t recognise the idea of all these wealthy people recycling tax-free cash. I wouldn’t recommend that to anybody.

“The Government suggests the move will save them £70m. I don’t know how they came to that number.”

Ingram argues the MPAA will hit both average earners looking to wind down to part-time work, but also those who wish to cash in some of their pension to pay for care of elderly relatives.

She adds: “If they go back to work and then can’t then fund their pension that seems very unfair.”

Verve Investment Planning IFA Steve Buttercase believes the Chancellor will be nervous about the impact of Brexit, and will look to introduce measures to help the so-called “Jams”, or those “just about managing”.

He says this may involve increasing the personal allowance, as well as reducing the annual allowance to show the wealthy are being targeted.

Buttercase says his hope is for a greater distinction to be made between pension and Isa saving.

He says: “I’d want any form of pension simplification, if possible, and an abandonment of the link between pensions and Isa options.

“I don’t want to see them merged, which is what we were heading for with Osborne. It benefits the already financially astute, not those who aren’t.”



Loosening the lifetime allowance for drawdown clients

As a result of the pension freedoms, more clients are likely to be in drawdown at age 75 and beyond. However, this means a lesser-known tax aspect is going to start having an impact on more people. The snappily titled Benefit Crystallisation Event 5A comes into play for those still in drawdown at age 75. […]


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There are 2 comments at the moment, we would love to hear your opinion too.

  1. Trevor Harrington 3rd March 2017 at 12:14 pm

    All good common sense …..
    Except, you need to consider some basic reality ….
    We have no money ….
    I am sorry, I should explain that better ….
    Regardless of the logic of you words, and what you think might be a good idea …
    we have no money ….

    On which basis, I think it far more likely that the Lifetime Allowance will come down to £800,000 (£40,000 pa pension x 20) and that any pensions in payment, in excess of £40,000 will be taxed at a super tax rate of 25% in addition to the normal banded income tax rates.

    Then we might be able to consider moving the state pension back to where it should have been … ie … age 60 for all and an index linked benefit of £200 per week.

    The fact of the matter is that, in addition to the Government having no money, private pensions have become the new social divide, and it is ridiculous, and divisive, that some have manipulated and taken extreme advantage of their overly generous final salary schemes, often fraudulently … and now sit on private pensions way in excess of £40,000 per year.

    With higher rate tax relief on contributions and company funded tax relieved contributions that are obscenely excessive, one could rightfully say that it is the rest of the population who have paid for these excessive pension benefits … primarily by way of losing their state pensions.

    And please do not tell me that we are all living longer because we are NOT.
    ONS statistics clearly say that life expectancy in the UK has not change one little bit in the last 50 years.

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